In the wake of recent protests over prolonged water outages in Gauteng, the country’s deepening infrastructure failures have once again exposed a critical weakness in South Africa’s development model: the inability to convert available capital into bankable, investable projects.

Recent reports from the Department of Water and Sanitation confirm that ageing infrastructure, poor maintenance and limited municipal capacity are driving service delivery breakdowns across major metros. While the need for investment is urgent, Futuregrowth Asset Management said the real constraint is not a lack of capital, but a lack of bankable project structures capable of attracting institutional investment at scale.

Jason Lightfoot, Senior Portfolio Manager at Futuregrowth, noted that closing South Africa’s water infrastructure gap will require more than innovative financing mechanisms. “South Africa faces a substantial water infrastructure financing gap,” he said. “Recent industry analysis estimates that the country requires between R4.8trn and R6.2trn in total infrastructure investment through 2030. Current public funding capacity falls well short of this requirement.”

Proposals such as expanding the JSE’s Sustainability Segment to introduce ‘blue bonds’ for water projects, together with blended-finance structures where development finance institutions (DFIs) provide concessional loans, first-loss tranches or partial credit guarantees to enhance municipal creditworthiness, have gained traction. But, Lightfoot said, such mechanisms cannot replace the fundamentals of sound, investable programme design.

“The challenge isn’t capital availability – it’s bankability,” he explained. “Institutional investors collectively manage over R5 trillion in assets, but retirement fund capital requires certainty of cash flows, appropriate risk sharing, robust legal agreements, and recourse mechanisms when obligations aren’t met.”

He added that credit-enhancement structures can make marginal projects viable and reduce the cost of capital where fundamentals are sound but cannot compensate for weak governance or limited delivery capacity.

“A first-loss tranche from a DFI doesn’t eliminate execution risk if a municipality lacks the technical capacity to deliver complex infrastructure projects,” said Lightfoot. “And a partial credit guarantee doesn’t solve for regulatory uncertainty or misaligned policy frameworks between departments.”

Lightfoot emphasised that the nine bankability requirements Futuregrowth has applied to infrastructure investment for more than three decades remain relevant regardless of financing innovation.

These requirements cover the essential ingredients that make infrastructure projects investable: predictable legal and regulatory frameworks, transparent procurement processes, fair risk allocation between public and private parties, and sound governance and technical capacity at implementing institutions. They also encompass clear revenue mechanisms, enforceable contracts, reliable counterparties and effective monitoring and recourse structures – all of which underpin investor confidence and ensure long-term sustainability.

“Blended finance can bridge specific gaps, but it works best where governance, execution capacity and institutional strength already exist,” he said. “Municipal water infrastructure needs are real and urgent. The financing innovation being proposed deserves serious consideration. But bankability remains the foundation upon which any structure must be built.”

With the Africa & Global South Water and Sanitation Dialogue taking place in Johannesburg next week, Futuregrowth said aligning financing innovation with the fundamentals of project bankability must be a national priority if South Africa is to build a water secure and economically resilient future.